BMW could shift some UK engine output if no orderly Brexit

Workers assemble cars at the plant for the Mini range of cars in Cowley, near Oxford, Britain June 20, 2016. REUTERS/Leon Neal/Pool

March 5, 2019

By Costas Pitas and Edward Taylor

GENEVA (Reuters) – BMW may move some engine production out of Britain if the country does not secure an orderly departure from the European Union, the German carmaker said on Tuesday, in the latest Brexit warning from the auto industry.

Britain, the world’s fifth-largest economy, is due to leave the EU on March 29 but an agreement between London and Brussels has been rejected by British lawmakers leaving open the possibility of a chaotic exit that could hit trade.

One risk of a no-deal Brexit is that British-made engines will no longer be counted as EU content, pushing the total level in some cars below the threshold of around 55 to 60 percent required in many international trade agreements.

“We have some flexibility on the engine side with Steyr in Austria,” Peter Schwarzenbauer, the head of BMW’s Mini brand, told Reuters at the Geneva car show, referring to another BMW plant. “We would need to make some adjustments toward Steyr.”

“We are preparing to be able to do it. Like we are preparing warehouses in the UK to produce cars,” Schwarzenbauer said.

A final decision on whether to transfer some production of engines from Hams Hall in central England, where BMW built over 375,000 engines last year, to Austria has not yet been taken, Schwarzenbauer added.

Britain’s car industry, which employs around 850,000 people and is largely owned by foreign manufacturers, has been rushing through plans to cope with a potential no-deal Brexit, such as building up inventories and in some cases organizing plant closures around Brexit day.

FUTURE IN DOUBT

However, Prime Minister Theresa May said last week that if UK lawmakers again rejected her Brexit deal, she would offer them a series of votes that could lead her to ask Brussels for a delay.

BMW said in September it was moving the annual maintenance shutdown for its Mini plant in Oxford, southern England, to April in case of Brexit disruption.

“We have made preparations. If Brexit is delayed we can postpone some measures, but the early summer break remains scheduled for April,” CEO Harald Krueger said at the car show.

Shutdowns and stockpiles take time and money to arrange, as for example employee holidays and suppliers are affected, making them hard to change.

And so while carmakers are keen to avoid a no-deal Brexit, they also do not want the process to drag on.

BMW made 234,183 cars in Britain last year, out of the country’s total production of about 1.5 million.

Japanese carmaker Toyota also called for clarity on Brexit.

“Frankly speaking, we would just like to get certainty as quickly as possible,” Johan van Zyl, president and CEO of Toyota Europe said at an event late Monday, echoing recent comments from UK luxury sports car maker Aston Martin.

Zyl said Brexit planning had come at a “huge cost” and warned Britain needed to secure a frictionless trade deal with the EU.

“If anything happens between the EU and UK that will have a negative impact on competitiveness of the UK operations, it will put the future in doubt,” he said, referring to the entire UK car industry.

Toyota made 129,070 cars at its Burnaston plant in central England in 2018 and is currently ramping up production of its new Corolla model.

Carlos Tavares, CEO of Peugeot and Citroen maker PSA Group, was more relaxed about a potential Brexit delay, saying he was in favor if the time was used to find a deal.

Daimler boss Dieter Zetsche, meanwhile, was hopeful a deal could be reached.

“It’s a game of poker. I am an optimistic person, and I hope that a no-deal Brexit is not realistic,” he said.